Do you want to start earning money while you sleep? Maybe it sounds too good to be true, but with passive income, it can become a reality. In this article, I will show you four ways you can put your capital to work and earn passive income. Each way has its own risk profile which you should be aware of.
P2P Crowdfunding
Here there are many different platforms where you can invest in loans. These can be consumer, business or real estate loans usually. From these investments you can receive between 5-12% interest per year.
The platforms are able to pay this interest from the payments received from the borrowers. Important to know is that some borrowers may not pay their loans back. Therefore you should be aware of the investment risk here as you may only receive 80-90% of the promised interest which will reduce your returns.
There are some platforms that offer to buy back non-performing loans after a certain time period, usually 60 days. Therefore this can improve the returns from these platforms but then you can face instead of a default risk from the borrower, but a platform risk from the platform itself.
An example is that you can earn upto 10% return with Estateguru. To earn a return of €50 per month (€600 per year), you would need capital of €6000. The funds are invested in property loans from businesses and property developers. The property is used as collateral for the loan in case of default. This means the loan could be safer because of the property used as security which you dont have in my second example.
A second example is that you can earn upto 15,10% with Lendermarket. To earn a return of €100 per month, you would need capital of €8000.
With these returns of 10% and over, it is a high risk investment and you should be aware of that.
Dividend Investing
Here the goal is to generate passive income through dividends. You do this by investing in individual companies who pay dividends.
The amount of dividends can vary from company to company. For example Exxon Mobil has a dividend of 4,93%. Therefore you would earn €4,93 from an investment of €100 each year. However, investing in just 1 stock is very risky because of the lack of diversification. Therefore it would make sense to build a portfolio of different stocks in many sectors to protect yourself from any negative market movements.
You could buy many individual stocks and collect the dividends but another way is that you could also buy a dividend ETF which would have already the required diversification across different sectors and countries. An example would be the iShares MSCI World Quality Dividend UCITS ETF. This has a dividend of 2,74% and is full with strong dividend paying companies. You would earn €2,74 from an investment of €100 here. For a €100 return, you would need to have around €21900 invested. However the total return for the ETF can be much more due to the price appreciation of the ETF.
Property Investment
This is probably the lowest risk investment for generating passive income. The investment in property with the least amount of work for us is property that we do not finance ourselves, maintenance, letting and actually purchase. This we can do through an ETF such as VanEck Vectors Global Real Estate UCITS ETF. This ETF allows us to invest in many property companies and deliver sometimes a better performance than single companies. This ETF covers the worlds main markets and in many different sectors.
The current dividend is 1,79%. Therefore when you invest €100, you would receive €1,79. This may not sound like alot, however you would also profit from any price increase of the ETF. The total return for 1 year was 38,63% including the dividend. This means you would have gained not just from the dividend, but also from the price increase. From a €100 investment, €38,63 in total.
To generate €100 of passive income with property you would need to invest capital of €67000.
Crypto Mining
Probably the most risky investment that promises the highest returns. For this investment you would need to find a platform that allows you to stake your crypto and receive swap fees and block rewards.
Let me know what your favourite type of passive income is in the comments and which you would recommend.
Thanks for reading.